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This paper analyzes empirically differences in the size of central bank boards
(or monetary policy committees) across countries. We discuss the possible
determinants of a board’s size. The empirical relevance of these factors is
examined using a new dataset that covers the de jure membership size of 84
central bank boards at the end of 2003. We find that larger and more
heterogeneous countries, countries with stronger ... View more

This paper analyzes empirically differences in the size of central bank boards
(or monetary policy committees) across countries. We discuss the possible
determinants of a board’s size. The empirical relevance of these factors is
examined using a new dataset that covers the de jure membership size of 84
central bank boards at the end of 2003. We find that larger and more
heterogeneous countries, countries with stronger democratic institutions,
countries with floating exchange rate regimes, and independent central banks
with more staff tend to have larger boards.

The paper is reviewing the foundation of the “Bankgesellschaft Berlin” in 1994
that consisted in a merger of three publicly owned banking institutes in
Berlin. The financial crisis of the banking group in 2001 resulted in one of
the biggest public scandals in German banking history. The paper is analyzing
the case of the “Bankgesellschaft” in relation to possible interdependencies
between its foundation and the financial ... View more

The paper is reviewing the foundation of the “Bankgesellschaft Berlin” in 1994
that consisted in a merger of three publicly owned banking institutes in
Berlin. The financial crisis of the banking group in 2001 resulted in one of
the biggest public scandals in German banking history. The paper is analyzing
the case of the “Bankgesellschaft” in relation to possible interdependencies
between its foundation and the financial crisis in 2001. In spite of evidence
for inefficiencies in the structure of the “Bankgesellschaft” it cannot be
stated that the merger in 1994 directly resulted in the financial crisis of
the banking group.

We use Bayesian estimation techniques to investigate whether money growth
Granger-causes inflation in the United States. We test for Granger-causality
out-of-sample and find, perhaps surprisingly given recent theoretical
arguments, that including money growth in simple VAR models of inflation does
systematically improve out-of-sample forecasting accuracy. This holds for a
long forecasting sample 1960-2005, as well for ... View more

We use Bayesian estimation techniques to investigate whether money growth
Granger-causes inflation in the United States. We test for Granger-causality
out-of-sample and find, perhaps surprisingly given recent theoretical
arguments, that including money growth in simple VAR models of inflation does
systematically improve out-of-sample forecasting accuracy. This holds for a
long forecasting sample 1960-2005, as well for more recent subperiods,
including the Volcker and Greenspan eras. However, the contribution of money
to inflation forecasting accuracy is quantitatively limited and tends to be
smaller in recent subperiods, in particular in models that also include
information on real GDP growth and interest rates.

Global excess liquidity roaming the world’s financial markets (or its sudden
absence) is sometimes believed to limit sovereign monetary policy even in
large economies such as the euro area. However, there is still discussion
about what constitutes global excess liquidity and how exactly it shapes the
policy environment. Our approach adjusts liquidity for longerterm interest
rate and output effects and focuses on U.S. ... View more

Global excess liquidity roaming the world’s financial markets (or its sudden
absence) is sometimes believed to limit sovereign monetary policy even in
large economies such as the euro area. However, there is still discussion
about what constitutes global excess liquidity and how exactly it shapes the
policy environment. Our approach adjusts liquidity for longerterm interest
rate and output effects and focuses on U.S. and Japanese liquidity as relevant
proxies for global developments from a euro area perspective. We find that
both excess liquidity in Japan and, in particular, the U.S. tend to lead
developments in euro area liquidity. U.S. excess liquidity also enters
consistently positive as a determinant of euro area inflation and is shown to
be Granger-causal for euro area inflation in an out-of-sample forecasting
exercise. In part, this result seems to be related to a weakening of the euro
area interest rate channel during times of excessive U.S. liquidity. In
contrast, the influence of Japanese and euro area excess liquidity on euro
area inflation is more limited.

The paper shows that there is a substantial degree of heterogeneity in the
ability of Fed watchers to forecast US monetary policy decisions. Based on a
novel database for 268 professional forecasters since 1999, the average
forecast error of FOMC decisions varies 5 to 10 basis points between the best
and worstperformers across the sample. This heterogeneity is found to be
related to both the skills of analysts – such ... View more

The paper shows that there is a substantial degree of heterogeneity in the
ability of Fed watchers to forecast US monetary policy decisions. Based on a
novel database for 268 professional forecasters since 1999, the average
forecast error of FOMC decisions varies 5 to 10 basis points between the best
and worstperformers across the sample. This heterogeneity is found to be
related to both the skills of analysts – such as their educational and
employment backgrounds – and to geography. In particular, forecasters located
in regions which experience more idiosyncratic economic conditions perform
worse in anticipating monetary policy. This evidence is indicative that
limited attention and heterogeneous priors are present even for anticipating
important events such as monetary policy decisions. Moreover, the paper shows
that such heterogeneity is economically important as it leads to greater
financial market volatility after FOMC meetings. Finally, policy-makers are
not impotent in influencing such heterogeneity as Fed communication is found
to affect forecast accuracy significantly.

How many people should decide about monetary policy? In this paper, we take an
empirical perspective on this issue, analyzing the relationship between the
number of monetary policy decisionmakers and monetary policy outcomes. Using a
new data set that characterizes Monetary Policy Committees (MPCs) in more than
30 countries from 1960 through 2000, we find a U-shaped relation between the
membership size of MPCs and ... View more

How many people should decide about monetary policy? In this paper, we take an
empirical perspective on this issue, analyzing the relationship between the
number of monetary policy decisionmakers and monetary policy outcomes. Using a
new data set that characterizes Monetary Policy Committees (MPCs) in more than
30 countries from 1960 through 2000, we find a U-shaped relation between the
membership size of MPCs and inflation; our results suggest that the lowest
level of inflation is reached at MPCs with about seven to ten members. Similar
results are obtained for other measures, such as inflation variability and
output growth. We also find that MPC size influences the success of monetary
targeting regimes. In contrast, there is no evidence that either turnover
rates of MPC members or the membership composition of MPCs affect economic
outcomes.

This paper contributes to the debate on the role of money in monetary policy
by analyzing the information content of money in forecasting euro-area
inflation. We compare the predictive performance within and among various
classes of structural and empirical models in a consistent framework using
Bayesian and other estimation techniques. We find that money contains relevant
information for inflation in some model classes. ... View more

This paper contributes to the debate on the role of money in monetary policy
by analyzing the information content of money in forecasting euro-area
inflation. We compare the predictive performance within and among various
classes of structural and empirical models in a consistent framework using
Bayesian and other estimation techniques. We find that money contains relevant
information for inflation in some model classes. Money-based New Keynesian
DSGE models and VARs incorporating money perform better than their cashless
counterparts. But there are also indications that the contribution of money
has its limits. The marginal contribution of money to forecasting accuracy is
often small, money adds little to dynamic factor models, and it worsens
forecasting accuracy of partial equilibrium models. Finally, non-monetary
models dominate monetary models in an all-out horserace.

This paper explores official trade data to identify patterns of smuggling in
international trade. Our main measure of interest is the difference in matched
partner trade statistics, i.e., the extent to which the recorded export value
in the source country deviates from the reported import value in the
destination country. Analyzing 4-digit product level data for the world’s five
largest importers for the period from ... View more

This paper explores official trade data to identify patterns of smuggling in
international trade. Our main measure of interest is the difference in matched
partner trade statistics, i.e., the extent to which the recorded export value
in the source country deviates from the reported import value in the
destination country. Analyzing 4-digit product level data for the world’s five
largest importers for the period from 2002-2006, we find that the reporting
gaps are highly correlated with the level of corruption in both partner
countries. This finding supports the hypothesis that trade gaps partly
represent smuggling activities.

In the first era of financial globalization (1880-1914), global capital market
integration led to substantial net capital movements from rich to poor
economies. The historical experience stands in contrast to the contemporary
globalization where gross capital mobility is equally high, but did not incite
a substantial transfer of savings from rich to poor economies. Using data for
the historical and modern periods we ... View more

In the first era of financial globalization (1880-1914), global capital market
integration led to substantial net capital movements from rich to poor
economies. The historical experience stands in contrast to the contemporary
globalization where gross capital mobility is equally high, but did not incite
a substantial transfer of savings from rich to poor economies. Using data for
the historical and modern periods we extend Lucas’ (1990) original model and
show that differences in institutional quality between rich and poor countries
can account for the sharply divergent patterns of international capital
movements.

This paper analyzes bilateral contracting in an environment with contractual
incompleteness and asymmetric information. One party (the seller) makes an
unverifiable quality choice and the other party (the buyer) has private
information about its valuation. A simple exit option contract, which allows
the buyer to refuse trade, achieves the first–best in the benchmark cases
where either quality is verifiable or the ... View more

This paper analyzes bilateral contracting in an environment with contractual
incompleteness and asymmetric information. One party (the seller) makes an
unverifiable quality choice and the other party (the buyer) has private
information about its valuation. A simple exit option contract, which allows
the buyer to refuse trade, achieves the first–best in the benchmark cases
where either quality is verifiable or the buyer’s valuation is public
information. But, when unverifiable and asymmetric information are combined,
exit options induce inefficient pooling and lead to a particularly simple
contract. Inefficient pooling is unavoidable also under the most general form
of contracts, which make trade conditional on the exchange of messages between
the parties. Indeed, simple exit option contracts are optimal if random
mechanisms are ruled out.

International trade patterns at the product level are surprisingly dynamic.
The majority of trade relationships exist for just a few, often only one to
three, years. In this paper, I examine empirically the duration in German
import trade at the 8-digit product level from 1995 to 2005\. I find that
survival probabilities are affected by exporter characteristics, product type
and market structure. Specifically, I show ... View more

International trade patterns at the product level are surprisingly dynamic.
The majority of trade relationships exist for just a few, often only one to
three, years. In this paper, I examine empirically the duration in German
import trade at the 8-digit product level from 1995 to 2005\. I find that
survival probabilities are affected by exporter characteristics, product type
and market structure. Specifically, I show that the duration of exporting a
product to Germany is longer for products obtained from countries that are
economically large and geographically close to Germany; for products with
large trade value and a low elasticity of substitution; and for trade pairs
that command a large share of the German import market and are characterized
by two-way trade.

Microfoundations of the euro’s effect on euro area trade hinge on the timing,
the speed and the size of adjustment in trade costs. We estimate timing, speed
and size of adjustment in trade costs for sectoral trade data. Our approach
allows for sector specific impacts of trade costs on sectoral trade while
controlling for unobserved but time-variant variables at the sector level. We
find that, due to falling trade costs, ... View more

Microfoundations of the euro’s effect on euro area trade hinge on the timing,
the speed and the size of adjustment in trade costs. We estimate timing, speed
and size of adjustment in trade costs for sectoral trade data. Our approach
allows for sector specific impacts of trade costs on sectoral trade while
controlling for unobserved but time-variant variables at the sector level. We
find that, due to falling trade costs, trade within the euro area increases
between the years 2000 and 2003 by 10 to 20 percent compared with trade
between European countries that are not members of the euro area. Adjustment
of individual sectors is extremely fast whereas aggregate adjustment spreads
out because different sectors adjust at distinct times.

This paper explores the factors behind the time path of real spending and
revenue in the West German states from 1975 to 2004. The empirical approach
stresses robustness and takes into account a large set of economic and
political variables. Our results suggest that common economic factors and, to
a smaller degree, state-specific economic developments are important
determinants of state fiscal performance. In comparison, ... View more

This paper explores the factors behind the time path of real spending and
revenue in the West German states from 1975 to 2004. The empirical approach
stresses robustness and takes into account a large set of economic and
political variables. Our results suggest that common economic factors and, to
a smaller degree, state-specific economic developments are important
determinants of state fiscal performance. In comparison, the influence of
political factors is limited both in statistical and quantitative terms.
Finally, there is evidence that addressing governance problems and ensuring
flexibility in terms of fiscal strategy are important ingredients for any
policy aimed at improving fiscal outcomes at the state level.

We use a mean-adjusted Bayesian VAR model as an out-of-sample forecasting tool
to test whether money growth Granger-causes inflation in the euro area. Based
on data from 1970 to 2006 and forecasting horizons of up to 12 quarters, there
is surprisingly strong evidence that including money improves forecasting
accuracy. The results are very robust with regard to alternative treatments of
priors and sample periods. That ... View more

We use a mean-adjusted Bayesian VAR model as an out-of-sample forecasting tool
to test whether money growth Granger-causes inflation in the euro area. Based
on data from 1970 to 2006 and forecasting horizons of up to 12 quarters, there
is surprisingly strong evidence that including money improves forecasting
accuracy. The results are very robust with regard to alternative treatments of
priors and sample periods. That said, there is also reason not to
overemphasize the role of money. The predictive power of money growth for
inflation is substantially lower in more recent sample periods compared to the
1970s and 1980s. This cautions against using money-based inflation models
anchored in very long samples for policy advice.

Monetary aggregates continue to play an important role in the ECB’s policy
strategy. This paper revisits the case for money, surveying the ongoing
theoretical and empirical debate. The key conclusion is that an exclusive
focus on non-monetary factors alone may leave the ECB with an incomplete
picture of the economy. However, treating monetary factors as a separate
matter is a second-best solution. Instead, a ... View more

Monetary aggregates continue to play an important role in the ECB’s policy
strategy. This paper revisits the case for money, surveying the ongoing
theoretical and empirical debate. The key conclusion is that an exclusive
focus on non-monetary factors alone may leave the ECB with an incomplete
picture of the economy. However, treating monetary factors as a separate
matter is a second-best solution. Instead, a general-equilibrium inspired
analytical framework that merges the economic and monetary “pillars” of the
ECB’s policy strategy appears the most promising way forward. The role played
by monetary aggregates in such unified framework may be rather limited.
However, an integrated framework would facilitate the presentation of policy
decisions by providing a clearer narrative of the relative role of money in
the interaction with other economic and financial sector variables, including
asset prices, and their impact on consumer prices.

We employ German Sample Survey Income data to examine income inequality and
the financial situation of elderly citizens for the period from 1978 to 2003,
focussing on differences between retired and non-retired elderly and between
elderly with residence in the Old and the New German Laender. Inter-temporal
changes in income inequality are also decomposed by income sources. To our
knowledge, this is the first study that ... View more

We employ German Sample Survey Income data to examine income inequality and
the financial situation of elderly citizens for the period from 1978 to 2003,
focussing on differences between retired and non-retired elderly and between
elderly with residence in the Old and the New German Laender. Inter-temporal
changes in income inequality are also decomposed by income sources. To our
knowledge, this is the first study that provides comparable and detailed
longitudinal income statistics for the German elderly. We find some remarkable
inter-temporal patterns. First, the financial situation of the elderly has
improved substantially over time. This is true especially for the New Laender,
although elderly with residence in the Old Laender remain financially
privileged. Within the same age cohort, we also find that non-retired, on
average, are financially better-off compared to retired elderly. For reunified
Germany, inequality is astonishingly stable over time, but rises significantly
since 1993 in the New German Laender.